Monday , 21 August 2017

Best Hedge Against Inflation Is Owning Gold and Silver Mining Stocks

We are about to encounter major inflation and the absolute best hedge against such inflation is by investing in the companies that mine gold and silver. You often get leverage of 2 to 4 times the price appreciation of gold or silver. If gold goes up by 50%, your miners may very well double or triple in value. Words: 1426

In further edited excerpts from his original article* Jason Hamlin ( goes on to say:

The Problems and Why You Should Care

1. Depreciating Dollar
If you are holding U.S. dollars in a savings account, CD or money-market fund, you are slowly losing what you have saved or inherited and within a few short years could lose the bulk of what is remaining. It is being done in such a way that most people don’t notice. The hidden tax of inflation has been robbing you for quite some time and the pace and severity of this theft is increasing rapidly. If I sound alarmist, it is with intention.

The dollar has lost over 30% of its value in the past 7 years. That means if you held $100,000 in a savings account, you would now only be able to buy $70,000 worth of goods and services with it. You might still see the number “$100,000” on your statement, but because the government and Fed have been printing so much money, the value of all of those dollars has been declining rapidly and this drop in value is about to accelerate at breakneck speed. We could even witness a dollar collapse, in which case you will be lucky if your dollars maintain 10 or 20% of their current value. This means that everything that you have saved or worked hard for in life could quickly disappear if your wealth is stored in dollars. Those that purchased a home in the past 6-8 years already have a taste of how quickly this can happen.

2. Unemployment
But you have a good job, so new money will keep flowing in right? Maybe not. Unemployment in the United States is now officially reported at 10%. In California it is over 12%. These numbers are bad enough, but they are significantly under-reporting the true unemployment picture. You see, the government no longer counts those that have given up looking for a job because they are discouraged and couldn’t find work. It also doesn’t count those working a few hours per week, even though they want a full-time job. So the true statistic, as reported by Shadow Stats, is closer to 20%! 1 in 5 people in America do not have a full-time job. We are witnessing Depression-era unemployment.

They can talk about how the stock market and economy are rebounding until they are blue in the face, but if people can’t find work and don’t have money to buy things, there is no recovery. In fact, the stock market is actually crashing (measured in anything but dollars). So, with the threat of unemployment, making sure that your savings and investments will be there to fall back on is becoming increasingly important.

A History of How This Happened

1. Dropping of Gold Standard
Our money used to be backed by gold. It stated this right on the top of the bill and you could go to the bank and trade in dollars for gold or silver at anytime. This is what gave dollars value but when greedy politicians wanted to spend more than they had, usually to finance wars, they took the dollar off the gold standard. This allowed the government to print as much as they wanted without needing to worry about having enough gold to back it up. As a consequence, the printing press has been running at full speed and our dollars are now backed by nothing but the faith in the U.S. government.

The concept of using paper as money is relatively new in history, whereas gold and silver have been used as money for as long as humans began trading. Gold has and will always retain its value because it is scarce, divisible, indestructible, hard to extract from the ground, attractive to the eye, extremely industrious and in limited supply. Fiat currencies have come and gone and this brief period of being able to just print money out of thin air whenever the government needs it is coming to an end.

The U.S. has been able to get away with it for so long because we won World War II and set up the dollar as the world’s reserve currency. Since then, everyone has used it to trade goods and settle international transactions, including oil trade.

2. Abuse of Reserve Currency Status
Our politicians have abused this power and the rest of the world is now looking to dump dollars and trade in for something more stable. This is big news. If the world no longer has to hold, trade and transact in U.S. dollars, what do you think will happen to their value, especially given that the supply has doubled in the last year alone?

China or Japan could crash the dollar by dumping their reserves and, while they are indeed dumping their dollars, they are doing it slowly so as to not create a sharp crash that leaves them holding the bag. However, as more and more people get rid of dollars and refuse to continue buying U.S. debt (for fear that the government won’t be able to pay it back), the dollar dumping is likely to accelerate and lead to a panic and crash in the currency. I don’t claim to be able to predict when this will happen, only that it will indeed happen. My guess is within the next 2-3 years.

Some Suggestions on What To Do

The absolute best hedge against the coming inflation is gold and silver, which have an inverse relationship to the dollar. As the dollar goes down, gold and silver go up. To protect against a decline in the dollar:

1. limit your exposure to U.S. dollars and dollar-denominated paper assets (stocks/bonds/etc.)

2. own tangible things that have true intrinsic value, not paper promises that can turn out to be worthless, as they have many times throughout history.

As you might have gathered by now, gold investing is not some get-rich-quick scheme. It is about protecting yourself and stopping the confiscation of your wealth. Granted, many precious metals investors will get very wealthy in the process, as gold has more than tripled in value since 2002 and many gold miners stocks have gone up more than 1000% in price. At the very minimum you should consider using precious metals as an “insurance policy” to protect your assets from what looks to be an inevitable dollar decline, if not an all out collapse.

Remember, while today’s price of over $1,000 gold is high, the inflation-adjusted high is actually closer to $2,300, suggesting gold still has plenty of upside. Many respected gold analysts believe it could reach $5,000 or $10,000 in the event of a dollar collapse and panic.

We are witnessing the greatest wealth transfer in the history of mankind. Are you protected? What side of the transfer will you be on?

Things I Believe Every Investor Should Do

Step 1: Get educated.
Don’t take my, or anyone else’s, word on this. Read books and newsletters on the subject and decide for yourself.

Step 2: Buy physical gold and silver and take possession of it
You can buy from your local coin shop or purchase from a number of online dealers that will store the gold for you. I highly recommend storing it outside of the U.S. banking system and outside of banks entirely if you can.

Step 3: Avoid “Fools Gold”
ETFs, pool accounts, futures contracts and leveraged accounts are not real gold. They are just paper promises often with no gold or silver behind them. Also avoid collector coins such as those sold in late-night infomercials. They have ridiculous premiums that are often several times above the metal content value in the coin.

Step 4: Invest in gold and silver mining companies.
The absolute best hedge against inflation is by investing in the companies that mine gold and silver. You get leverage of 2 to 4 times times the price appreciation of gold or silver. If gold goes up by 50%, your miners may very well double or triple in value. [Editor’s Note: In fact, gold went up 24% in 2009 versus the HUI at 42% (i.e. 1.75 times) and the Gold and Silver Companies Index (GSCI) which was up 85% (i.e. 3.5 times)]


Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
Permission to reprint in whole or in part is gladly granted, provided full credit is given.
Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
Submit a comment. Share your views on the subject with all our readers.
Buy the book below from Amazon. It’s pertinent to this article and inexpensive too.

One comment

  1. You can quantitatively value gold as an inflation hedge using actuarial methods such as insurance companies use to value premiums according to assessed risks. You can use the following online calculator to come up with a fair value of gold based on your own inflation expectations:

    Likewise with silver: